ACCI SUdstional Workforce Development Stratery
ACCI Response to the Skills
Australia Discussion Papers
1 September 2010
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© Australian Chamber of Commerce and Industry 2012
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Australian Chamber of Commerce and Industry.
i
Australian Chamber of Commerce & Industry, April 2012 /Productivity Commission Inquiry into Default Superannuation Funds in Modern Awards
1. About ACCI
1.1 Who We Are
The Australian Chamber of Commerce and Industry (ACCI) speaks on behalf of Australian business at a national and international level.
Australia’s largest and most representative business advocate, ACCI develops and advocates policies that are in the best interests of Australian business, economy and community.
We achieve this through the collaborative action of our national member network which comprises:
§ All state and territory chambers of commerce
§ 28 national industry associations
§ Bilateral and multilateral business organisations
In this way, ACCI provides leadership for more than 350,000 businesses which:
§ Operate in all industry sectors
§ Includes small, medium and large businesses
§ Are located throughout metropolitan and regional Australia
1.2 What We Do
ACCI takes a leading role in advocating the views of Australian business to public policy decision makers and influencers including:
§ Federal Government Ministers & Shadow Ministers
§ Federal Parliamentarians
§ Policy Advisors
§ Commonwealth Public Servants
§ Regulatory Authorities
§ Federal Government Agencies
Our objective is to ensure that the voice of Australian businesses is heard, whether they are one of the top 100 Australian companies or a small sole trader.
Our specific activities include:
§ Representation and advocacy to Governments, parliaments, tribunals and policy makers both domestically and internationally;
§ Business representation on a range of statutory and business boards and committees;
§ Representing business in national forums including Fair Work Australia, Safe Work Australia and many other bodies associated with economics, taxation, sustainability, small business, superannuation, employment, education and training, migration, trade, workplace relations and occupational health and safety;
§ Representing business in international and global forums including the International Labour Organisation, International Organisation of Employers, International Chamber of Commerce, Business and Industry Advisory Committee to the Organisation for Economic Co-operation and Development, Confederation of Asia-Pacific Chambers of Commerce and Industry and Confederation of Asia-Pacific Employers;
§ Research and policy development on issues concerning Australian business;
§ The publication of leading business surveys and other information products; and
§ Providing forums for collective discussion amongst businesses on matters of law and policy.
Table of COntents
1. About ACCI iii
1.1 Who We Are iii
1.2 What We Do iii
2. Introduction 1
3. KEY ISSUES 2
4. ACCI MEMBERS 21
i
Australian Chamber of Commerce & Industry, April 2012 /Productivity Commission Inquiry into Default Superannuation Funds in Modern Awards
2. Introduction
1. On 20 January 2012 the Government announced that the Productivity Commission would conduct an inquiry into default superannuation funds in modern awards and released the terms of reference, although these were not formally referred to the Commission until 6 February.
2. On 29 February the Commission released an issues paper, Default Superannuation Funds in Modern Awards.
3. ACCI welcomes the opportunity to comment on a number of issues raised by the inquiry. The submission addresses general policy issues that it understands to be directly relevant to employers in their role in the superannuation system.
4. This submission is without prejudice to ACCI or its members in making submissions to this inquiry.
3. KEY ISSUES
The Inquiry
5. The Commission’s inquiry would appear to mainly affect Australia’s private sector employers, with the exception of unincorporated employers subject to the Western Australian industrial jurisdiction. This is because much public sector activity is regulated by state industrial jurisdictions. Contributions into many federal government funds and state government funds prescribed by the Superannuation Guarantee (Administration) Regulations 1993 are compliant with choice.
6. The Commission’s terms of reference are directed to modern award prescription of default superannuation funds. The terms of reference do not extend to nomination of funds in agreements and the question of funds in agreements is not addressed in this submission. The terms of reference seem to presuppose that modern awards should continue to nominate funds and require that the Commission should design criteria for funds for Fair Work Australia to choose from. These matters are discussed below.
Employers’ Interest
7. Based on limited empirical research, employers have diverse attitudes to superannuation and relate to the superannuation system and individual funds differently. Many employers do not fully understand their superannuation obligations under the mix of industrial and guarantee obligations. In its quantitative study for the ATO Colmar Brunton found that 95% of their 1004 employer respondents felt they had sufficient information to manage their superannuation obligations, and the feeling was strongest amongst small employers (employing 6 – 19 employees).[1]
8. This seems surprising and caution might be warranted. Only 51% of these respondents reported that their business had a default fund. 487 businesses said they did not have a default fund or did not know, including 10 businesses with 20 – 99 employees and one with 100+ employees. As well, in answer to a question about how they determine where a new employee’s contributions should be paid, 56% of respondents said they asked new employees to nominate a fund without mentioning the business’ default.[2]
9. In its related qualitative research Colmar Brunton found:
All employers in the groups were aware that they are required to contribute 9% for each employee into a superannuation fund of the employee’s choice. Beyond this basic information more detailed knowledge is highly variable; some employers demonstrates a high level of engagement and involvement with superannuation, yet most have only a basic understanding of the system. For those with a greater level of understanding this is resulted generally from investigation into their own personal superannuation.[3]
10. Many employers find dealing with the system unduly onerous, and for many there is excessive complexity and a lack of standardisation.[4] Despite this, available evidence suggests that employers are remarkably tolerant of the superannuation system considering how it impacts them.[5] This suggests that employers as a group accept the fact of superannuation and see the importance of people having something to retire on.[6]
11. Employers have an interest in the superannuation system working well and efficiently and providing good retirement assets for employees. They do not have an interest in increased complexity, administration requirements or higher costs. Changes of this kind do nothing to assist the legitimacy of superannuation.
12. Some employers go a lot further than is required so that their superannuation offering is something which marks them out as an employer. The capacity to do this, and how they do it, depends on the nature and market environments of the employer’s operations.
13. Even for employers which are able to put additional resources into their superannuation arrangements, there is no desire for superannuation to become more complicated. Complication consumes resources and any additional resource impost arising from additional complication is not justified.
Changing Default Funds
14. One of the implications of prescribing criteria for Fair Work Australia to determine which funds can be selected for modern award nomination is that some funds otherwise potentially available for nomination will not be named. For employers this raises the issue of a currently named default fund being removed from a modern award.
15. There is little publicly available empirical evidence about the extent to which employers change their default funds, but ACCI believes that it is not common. Colmar Brunton’s focus group research supports the view that moving defaults is not common and not high on employers’ priorities. None of the approximately 60 employers in its focus groups had considered changing their default:[7]:
Most employers had not chosen the default fund; in most cases it had been inherited. For those who had been involved in choosing a superannuation fund the process was considered to be relatively straight forward, although this reflects the perceived lack of distinction between the funds rather than access to comprehensive and simple information. In fact, in many cases the superannuation system is considered very complex with plenty of variations to consider. Employers naturally evaluate funds based on the ease of contribution and processing. Some funds require employers to be members in order to contribute on behalf of their employees. This is considered to be disadvantageous if multiple funds are required. Similarly, most employers look for ease of processing and online transactions in choosing their default funds. Low fees are also important. Some employers also looked for funds that would be proactive in communicating with the employees, and anecdotally there is a lot of variation in the degree to which funds are proactive in this way.[8]
16. Colmar Brunton’s quantitative research also supports the view that employers do not often change default funds. Of 1004 responding employers, 34 (3.4%) had changed their default, the main reasons being because the new fund was more beneficial to members (38%), easier to deal with (29%), because they were changing fund type (24%) or the fund charged lower fees (21%).[9]
17. There are good reasons for this default fund “stickiness” (which is not necessarily a bad thing) apart from the relative unimportance of default fund selection to employers’ operations. One is the nature of contractual arrangements between funds and employers where the employer is a “standard employer sponsor” (there is a direct contractual arrangement between the employer and the fund). Another reason is the superannuation guarantee legislation itself.
18. Under choice legislation an employer which does not offer universal choice must nominate a fund (the default fund) in the standard choice form and contribute into it unless the employee provides a chosen fund in writing and with the proper documentation. Under workplace law contributions into a default fund must also comply with any fund nomination provision which is contained in a modern award which applies to the employer in respect of the particular employee. Where an award applies, the nominated default fund on the standard choice form must be the fund or one of the funds nominated in the modern award.
19. When an employer changes the fund into which default fund contributions are being made the employer must give the affected employees (employees who have not chosen a fund whose contributions are being paid into the former default fund) a new standard choice form which identifies the new default fund. The employer may have to enter into a standard employer sponsorship with the new default unless there is already such an arrangement in place. The employer will have to enrol all affected employees except those who return a properly completed standard form before that happens.
20. Some employees might decide to choose the former fund, perhaps because the employee has selected an investment option with that fund. Some employees might decide to exercise choice, and nominate a totally different fund, perhaps because they do not like the proposed new default. There is no particular time by which an employee must return a choice form.
21. Under the current regime employees not choosing the former default fund would end up with an additional account, although the implications of this may be reduced under SuperStream.
22. These impacts would not arise if awards did not name funds.
23. Similar issues potentially arise with the impending introduction of MySuper. To date there is no finalised legislation, and further MySuper legislation is to be tabled, so it is difficult to speak with finality. ACCI understands that most significant public offer funds, non-public offer industry funds and many corporate funds will apply for and receive authorisation to offer a MySuper product. If this is so it may be that few employers will be required to establish a new default fund. However, it is not clear the extent to which funds’ current default investment options can just become the fund’s MySuper product, the extent to which scale will impact the capacity to gain authorisation, nor the pace of post-MySuper amalgamations.
Nominating Funds in Modern Awards
24. Superannuation is a major fact of employment life. As at the December quarter 2011 there were 362 (non-small) APRA regulated funds with $B863.4 in assets, an increase in all the major fund types except corporate funds. (There was another $B442.5 of assets in other types of superannuation entity). Over the quarter to December 2011 employers paid $B16.9 in contributions to these 362 funds, the lion’s share of the $B20.6 of contributions they received.[10]
25. There do not seem to be figures available on the numbers of employees with superannuation coverage. Some measure of industry size, but not of employees covered, is that at 30 June 2011 there were 386 non-small APRA regulated funds which collectively held 30.48 million accounts.[11] In the period April to June 2007 94% of employees had superannuation coverage.[12]
26. The origin of this near universal superannuation coverage of Australian employees, and the growth of both the industry and retail fund sectors, is the award system following the then Australian Industrial Relations Commission (AIRC) national wage decision of 1986. In that decision the AIRC rejected a 4% productivity wage claim and granted access to consent award and agreement provisions providing for superannuation contributions which were no greater than 3% of ordinary time earnings and were consistent with the Commonwealth's Operational Standards for Occupational Superannuation.[13]
27. This was a contentious development and strongly opposed. The insertion of superannuation provisions into industrial instruments gave rise to disputation, a significant amount of which concerned fund nomination. In its March 1987 national wage decision the AIRC noted: